Ukrainian Supreme Court to Decide Important Cases Related to Commercial Arbitration
22. 08. 2023
Since its launch in 2017, the Ukrainian Supreme Court has been revolutionising approaches to international arbitration. Along with procedural changes introduced in late 2017 vesting the national courts with broad powers to take measures in support of arbitration proceedings, e.g., with respect to taking evidence, that has had profound effect on international commercial arbitration in Ukraine.
This summer, at least, two very important cases relating to international commercial arbitration were brought before the Supreme Court; one (court docket No. 911/1766/22) – on the admissibility of standalone legal actions to void the arbitration agreement in the national courts in circumvention of arbitration and regular setting-aside proceedings (the “Voiding of Arbitration Agreements Case“), the other (court docket No. 910/3208/22) – on the extension of the arbitration clause to non-signatories (the “Non-Signatories Case“).
This article aims to provide a brief overview of the legal issues that arose in both cases.
The Voiding of Arbitration Agreements case.
The buyer under an Agreement No. 37/20/60 of 12 March 2020 (“Agreement“) breached its contractual obligations. The dispute initiated by the seller was considered by a domestic arbitration court according to the arbitration clause provided by the Agreement. The domestic arbitration court awarded to recover monetary amounts from the buyer in favour of the seller.
The buyer (“Claimant” in this case) believed that the arbitration clause envisaged by the Agreement violated and restricted its rights. It filed a lawsuit with the Commercial Court of the Kyiv region to void the arbitration clause in the Agreement.
The trial court by its ruling left the claim without consideration. It ruled that the dispute is not subject to consideration in the national courts since the parties had agreed to refer the dispute to arbitration. The appellate court upheld this ruling.
This case is now referred to the Joint Chamber of the Commercial Court of Cassation within the Supreme Court for consideration of whether to deviate from the conclusion set forth in the earlier Supreme Court’s resolution. In that resolution (case No. 910/9841/20), the Supreme Court concluded that the validity/invalidity of an arbitration agreement/clause may as an independent (standalone) claim be considered by the national court regardless of the existence of disputed issues under the principal agreement/contract. Now it is up to the Joint Chamber whether to apply the approach of limited challenging of the arbitration agreement or reiterate the extended one, which is obviously not pro-arbitration.
The Non-Signatories case.
This case was brought at the Commercial Court of the city of Kyiv by a Ukrainian grain producer against a Ukrainian company. The latter acted as a guarantor to the Swiss buyer. According to the contract dated 2 February 2022 between a Ukrainian grain producer (“Seller“) and a Swiss company (“Buyer“), any disputes arising out of or under it should be settled by arbitration having its seat in London, in accordance with GAFTA Arbitration Rules No. 125. On 14 February 2022 a tripartite contract titled “Supplemental contract No. 2 to the Contract dated 2 February 2022” was concluded between the Seller, the Buyer and a Ukrainian company (“Guarantor“). Whilst this “Supplemental contract No. 2” (i) stipulated that the Guarantor “undertakes all obligations of the Buyer arising from the Contract, taking into account all amendments and supplements to the Contract, both existing and future” and (ii) provided joint and several liability of the Guarantor and the Buyer before the Seller, it contained no arbitration clause.
The trial court ruled on its impossibility to consider this dispute since it was also covered by the arbitration clause in the contract dated 2 February 2022. The appellate court disagreed and ruled that an arbitration clause envisaged by the contract between the Buyer and the Seller does not automatically extend its effect to the relations with the Surety under the surety agreement, which does not contain such an arbitration clause.
Now the Supreme Court is to decide whether the arbitration clause can be extended to the non-signatories. In deciding this issue, it may need to depart from the previous position expressed in the resolution dated 18 October 2017 in case No. 910/8318/16, according to which only the mutual consent of the parties to the dispute to resolve it by a commercial arbitration court, formalised in a relevant arbitration clause, give rise for consideration of the respective dispute in such court.
These two cases are of significant importance to the thriving of arbitration in Ukraine. We will be following their consideration. All developments in these cases will be analysed and posted on our website.